This is the subject of my latest Bloomberg column, here is an excerpt:
It is true that prices in the 19th century were generally high, but it was not the main reason that the US got rich (it was an important means of financing the government, due to the absence of income tax). The best economic studies show that what drove the growth of the US economy was population growth and capital accumulation. Tariffs raised the prices of major imports and thus slightly dampened growth, while US expansion was actually faster in non-tradable goods.
That’s Doug Irwin of course. And this:
The US may stop subsidizing its domestic drone industry, for example, given the military importance of those devices. But there are limits to how many sectors the US can support or protect. If we look at some of the success stories abroad, it is clear that those manufacturing jobs are often high quality and relatively well paid. They attract some of the best talent, as do chip factories in Taiwan or Korea. The US could benefit from reallocating some efforts to the defense and defense-related sectors – but it cannot accomplish everything at once. Instead, it needs to prioritize where it puts its best talent.
In some cases there is cause for concern, for example with the decline of Boeing, which if anything has been protected for a long time by relying on the government as a major customer. Industrial policy or government protection does not automatically bring quality or commercial success.
And finally:
For national security qualifications, as noted above. Expertise is really important, and the US has a lot of expertise in free trade. For all the scoffing at entrenched ideas like “neoliberalism,” critics of free trade have no new arguments that economists haven’t already argued. And if the Republicans won’t respect technology on this issue, do you think they will follow the best advice available on setting tariffs and industrial policy?
Recommended, interesting throughout.
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